Could E.African countries lose out on the benefits of low oil prices?

by Elayne Wangalwa 0

According to Deloitte East Africa’s latest report, ‘Falling Oil Prices – Winners and Losers’, failure to set up sufficient oil storage in East African countries means that the region fails to benefit from a chance to accumulate cheap stockpiles.

Speaking to CNBC Africa, Joseph Thogo a senior tax manager at the consulting firm said, “East Africa has a unique situation whereby the reserves that we have are not adequate to take advantage of any fall in the prices of the global [oil] market.”

(READ MORE: Drop in oil prices is a wakeup call for proper expenditure planning)

“Such that now when the prices increase slightly in the global market it affects us, impact is felt immediately, so we are not able to harness the advantage of the low prices.”

Thogo says this is the chance for East African countries to accumulate cheap stockpiles as is the trend overseas. This is as global crude prices have fallen to a record six-year low. However, Organization of Petroleum Exporting Countries (OPEC) has indicated that oil prices could return to 70-80 US dollars by the end of the year.

“This is the most opportune time for the governments in the region to think of strategic reserves and take advantage of the [global oil] prices.”

Moreover, the report argues that there is a likelihood of a slowdown on ongoing oil exploration projects in the region, ‘as firms defer new projects with the expectation of higher prices in future’.

(WATCH VIDEO: Unpacking the impact of dropping oil price on the East Africa Community)

Some analysts perceive the falling of global crude prices could hamper the growth of the discoveries in Uganda, Kenya, South Sudan, Ethiopia, Tanzania and Mozambique which have emerged as some of the most prolific oil and gas explorations in the world over the last 10 years.

In an interview with CNBC Africa Lisa Brown, country risk analyst at Rand Merchant Bank said, “In the short term there will be definitely be winners in terms of the current account. We have got countries in East Africa importing most of its oil.”

“In the long term though, this oil price slump comes at a time of rampant productions, an increase in supply in the global oil market and this restrains investment decision from oil and gas companies.”

Nonetheless, a major beneficiary of the slump in global oil prices is the aviation industry.

“While calling for the need for the benefits of the lower prices to trickle down to end consumers, it estimates that airlines’ fuel bills, which account for the bulk of their operating costs, could drop by up to 13 per cent,” the report indicates.